The Theranos Story: how WSJ's John Carreyrou revealed fraud & deception in "BAD BLOOD" E828

TL;DR

John Carreyrou investigated Theranos and revealed that the company used standard commercial machines for most blood tests instead of its promised technology. Elizabeth Holmes and Sonny Balwani misled investors and endangered patients by providing inaccurate blood test results, which ultimately led to their downfall.

Transcript

hey everybody hey everybody welcome to another episode of this week in startups one of the great stories of the last decade in business has been the saga of varanos the famous company that was trying to revolutionize blood testing by letting you have a micro vial a pin prick of your blood to tell you what was going on in your body and replace expen... Read More

Key Insights

• ⚾ Theranos's claims of revolutionizing blood testing were based on fraudulent practices and unreliable technology.
• 🧑‍⚕️ Elizabeth Holmes and Sonny Balwani manipulated investors and jeopardized patient health through deceptive practices.
• 💖 The investigative journalism by John Carreyrou exposed the Theranos scandal and sparked legal action against the company.

Questions & Answers

Q: How did John Carreyrou become aware of Theranos and Elizabeth Holmes?

Carreyrou became intrigued after reading a profile on Elizabeth Holmes in the New Yorker. He was skeptical about her claims and was inspired to investigate further when he received a tip from a practicing pathologist.

Q: What were some red flags that made Carreyrou suspicious of Theranos?

Carreyrou was skeptical because Holmes, a college dropout, claimed to have developed groundbreaking medical science with minimal training. Additionally, the complexity of the medical field and the young age of the company's founder raised doubts for Carreyrou.

Q: How did Carreyrou gain the trust of his sources and protect their identities?

Carreyrou assured his sources of his journalistic integrity and highlighted his experience as an investigative journalist. He also met with them in person to establish trust. Carreyrou protected their identities by granting them confidentiality and promising to keep their information secret.

Q: What were the key findings of Carreyrou's investigation into Theranos?

Carreyrou's investigation exposed that Theranos relied on regular commercial machines for most of its tests, rather than the revolutionary technology it claimed to have developed. He also revealed that the company manipulated test results and risked patient health. Additionally, Carreyrou discovered the extent of deception in Theranos's presentations and demonstrations.

Summary

In this episode of This Week in Startups, the host interviews John Carreyrou, the author of "Bad Blood: Secrets and Lies in a Silicon Valley Startup." Carreyrou discusses how he uncovered the fraud at Theranos and the lengths the company went to in order to keep their secrets hidden. He shares insights into Elizabeth Holmes, the founder of Theranos, and her manipulative tactics. Carreyrou also reveals the intimidation tactics used against him and his sources, including surveillance and threats of legal action.

Questions & Answers

Q: How did John Carreyrou first become aware of Theranos?

Carreyrou became aware of Theranos after reading a profile of Elizabeth Holmes in the New Yorker magazine in late 2014. He immediately felt skeptical about her claims of revolutionizing blood testing with a small sample of blood.

Q: Why was Carreyrou skeptical of Elizabeth Holmes' claims?

Carreyrou was skeptical of Holmes' claims because he knew that medicine was a complex field that often required years of research and formal training. He found it hard to believe that a college dropout with limited formal education in chemistry could pioneer groundbreaking medical science.

Q: What led Carreyrou to investigate Theranos further?

Carreyrou received a tip from a practicing pathologist who also ran an obscure blog called the Pathology Blog. The pathologist was skeptical of Theranos based on his knowledge of blood testing and had been contacted by a group of Theranos skeptics. One of these skeptics, Richard Fuse, had been involved in litigation with Theranos and believed the company was a scam.

Q: How did Carreyrou establish his first contact with a primary source within Theranos?

Carreyrou connected with a former Theranos employee, referred to as Alan Beam in the book, who had worked as a laboratory director. Beam had firsthand knowledge of Theranos' practices and was able to provide critical information for Carreyrou's investigation.

Q: How did Carreyrou gain the trust of his confidential sources?

Carreyrou emphasized his experience as an investigative journalist and his commitment to protecting their identity. He assured them that he had dealt with confidential sources before and maintained their trust by keeping their identity confidential.

Q: Did Carreyrou's reporting face pushback from Theranos?

Yes, Theranos initially tried to ignore Carreyrou's requests for information. After realizing that he would not go away, they shifted to an aggressive counter-attack strategy. They hired high-profile attorney David Boies, who threatened legal action and attempted to intimidate Carreyrou.

Q: How did Theranos target Carreyrou's sources?

Theranos engaged in surveillance and intimidation tactics to silence Carreyrou's sources. They sent letters to one of his sources, Erica Chung, demanding a meeting and attempted to locate her by sending the letter to an address only known to her colleague. Theranos also targeted another source, Tyler Schultz, the grandson of former Secretary of State George Schultz, with threats of legal action.

Q: Did Carreyrou ever find out if David Boies knew the true state of Theranos?

Carreyrou believes that Boies was likely unaware of the true state of the company and blindly defended Elizabeth Holmes. His law firm, Boyce Schiller Flexner, played a role in Theranos' intimidation tactics against Carreyrou and his sources.

Q: How did Theranos attempt to keep the trade secrets of its technology?

Theranos tried to force Carreyrou and his team to sign non-disclosure agreements to limit the information he could investigate and report. They claimed that the proprietary technology was too valuable and that competitors like Quest and LabCorp were also trying to obtain the information.

Q: What happened during the tense five-hour meeting between Carreyrou and Theranos' legal team?

In the meeting, Theranos attempted to intimidate Carreyrou by recording the conversation with tape recorders and aggressively challenging his questions. Their lawyers, including David Boies and Heather King, accused Carreyrou of misappropriating trade secrets and demanded that he destroy or return them immediately.

Takeaways

The story of Theranos and Elizabeth Holmes serves as a cautionary tale about the lure of charismatic founders and the need for due diligence in the startup ecosystem. Carreyrou's investigation and reporting exposed an elaborate fraud that not only deceived investors but also risked the health and well-being of patients. It highlights the importance of investigative journalism in holding companies accountable and the challenges faced by journalists when confronting powerful individuals and corporations.

Summary & Key Takeaways

• Journalist John Carreyrou unearths the fraudulent practices of Theranos, a company claiming to revolutionize blood testing with just a small pinprick.

• Carreyrou reveals that the technology was far from what it promised, and instead, Theranos used regular commercial machines for most of its tests.

• Elizabeth Holmes and her partner, Sonny Balwani, manipulated investors, faked demonstrations, and risked the health of patients by providing unreliable blood test results.